The worst example of ignorance and incompetence

Cedric E. Stephens, Contributor Question: I bought a car in March of this year. It was insured through a broker. A cash deposit was paid in order to obtain a cover note; a receipt was issued. The balance of the premium was paid almost one month later, also in cash. I got another receipt. The two payments amounted to $99,198.99. A few months later when I asked about the certificate of insurance, I learnt that the person who collected the money had left the company. She was suspected to have stolen part of the premium that I paid. When I contacted the insurer, I was told that my policy was cancelled for J$6,665. Only J$46,251 of the amount that I paid was sent to them. The broker has since said there is nothing they can do except to insure the car with another company if I agreed to pay an additional J$125,000. In the meantime, the institution that financed the purchase is threatening repossession even though my payments are up-to date. Can you help?

- M.W., Spanish Town PO, St Catherine.

HELPLINE: I decided to use your problem as the topic for today's article for three reasons.

The first is that your case is the worst example of ignorance and incompetence that I have met in the insurance industry in nearly two decades of writing this column.

The second is that your experience proves that some employees of insurance companies and brokers — who are expected to have basic knowledge about insurance, the law governing the conduct of the insurance business and business in general — know zilch. They don't even have common sense.

Members of that group seem far more interested in collecting money than in building relationships with customers and creating positive images for their companies. Customers are treated as automated teller machines (ATMs) that dispense money instead of as kings and queens on which their businesses depend.

I was very glad to learn on November 19 that you fired the broker. Also, that the insurer has since admitted, by its actions, that it cancelled your contract in error. The reversal of that company's earlier decision took place only after I had quoted the chapter and verse of the 'Insurance bible' to one of its officials and stated that the broker had tarnished the company's image and reputation.

Section 82 of The Insurance Act says that even though the premium was paid to the broker's dishonest ex-employee, the law considers the two payments as being made directly to the insurer.

Employer-employee relationships

My third reason for discussing your question is it gives me a chance to address a part of the law that many consumers do not know about.

Employer-employee relationships are based on a legal rule called 'agency'.

The agent or employee is deemed to be acting on behalf of and with the consent of another, the principal or employer, and with the latter's authority.

Principals are generally responsible for the actions of their agents. This legal doctrine lies at the heart of understanding what the 'insurance bible' says about the payment of premiums to insurance agents and brokers.

The first part of Section 82 of the Act says: "An agent, a broker or sales representative shall, for the purpose of receiving any premium for a contract of insurance, shall be deemed to be the insurer's agent and, notwithstanding any conditions or stipulations to the contrary, the registered insurer shall be deemed to have received any premium received by the agent, broker or sales representative."

The aim of this particular section of the Insurance Act is crystal clear — even to laypersons like you and me. Even though you made the payment of J$99,198.99 to the broker, the law treats that payment as having been made to the insurer.

If Subsection (1) of Section 82 is fuzzy, the second sub-clause, (2), makes its intention much clearer.

It reads: "An insurer on whose behalf a broker, agent, or sales representative has received a premium or part thereof, shall accept liability arising under the policy, notwithstanding that the insurer has not received the premium."

Given these provisions, I would argue that your policy was never cancelled.

Finally, your ex-broker and insurer should know that one of the conditions of getting a licence to act as a broker is a requirement to carry insurances against errors and omissions and employee dishonesty.

The latter provides protection to employers against the dishonest acts of employees. Had they been aware of this fact and were familiar with Section 82 of the Insurance Act, it is unlikely that they would have told me the rubbish they did when I first contacted them.